Episode 21:

Hello and Welcome to the Part3 with me podcast.

The show that helps part 3 students jump start into their careers as qualified architects. I am your host Maria Skoutari and following on from last weeks episode, this week we will be talking about the initial steps and processes of starting a practice meeting PC4 Practice and Management of the Part 3 Criteria. 

So before even considering what type of business structure you would like your practice to follow, first you need to establish your business strategy, which consists of your Why, What, Who and When which is Step 1 of starting up a practice. 

So what are the underlying answers and additional questions from these 4 key questions? 

Starting with the Why, why do you want to start your own practice first of all? Is it because you have been made redundant and that’s the only next step available? Is it because you want to make your own money in your own way and for yourself? Or is it the freedom and flexibility of being your own boss and not having to report to others? Or is to have a practice that reflects your ethos and motivations and style of architecture?

Next is the What, what are your ambitions and what do you want to achieve with this practice? What do you want to accomplish and by when? What type of projects will you be working on and do you have the capacity and experience to do them? 

Then you move on to Who, Will you be starting the practice with someone else or on your own? Is it with friends or with strategic partners that compliment your skills, personalities and experience forming a useful team and planned practice? Do you know if you indeed work well together, have you done a test run on a project? Or do you want to start a practice with your significant other? Can your relationship withstand being together 24/7. Have you had previous experience in working as a team? If not it may be worth testing it our first. 

And last but not least, you must establish your When, It it a good time at that point in your career to start a practice? Have you accumulated the right level of experience in terms of must-knows, dealing with contracts and finances? Do you have a safety net to fall back on if for any reason something doesn’t go as planned? Is the financial climate in a good state for you to start your practice and have it grow? A combination of general circumstances, opportunities, situation, age, and impatience that will most likely drive your when. Maybe consider working part-time somewhere until your in a stable position to move to your business full time or until you can continue independently you may consider forming a collaboration with other practices or individuals to also help gain the experience you need.  

After you establish your Why, What, Who and When, then you will take the next step of establishing your checklist that will help inform your business plan. 

So you will need to look at the initial 3-5 years from the start of your practice and you should consider things like:

First starting with economic items:

• What will you sell? Make a broad assumption on the type and size of projects you are likely to win each year as the practice develops and cross reference it with your timescale and capacity to deliver each project. This may in return only result in a handful of profitable projects, is that enough for your business? Will that cover what you need? Will you have enough time to do all the other aspects of actually running the business? Will you need to take additional work from elsewhere to substitute your income? Add up your likely fee and income each year to see where you are at with your forecasting and timescales. 
• Then you should think about who will actually be doing the work? Will you need to employ additional people? What will their salaries need to be? Will you have enough cashflow to pay everyone? Add these factors in your assessment by adding up the salaries for each year plus any National Insurance costs.
• Next key thing you need to consider is where will you work? Will it be from your home? Will you rent a workspace? If you are planning to rent then make sure the costs of the rent are included in your assessment and if you will have any overheads such as utility bills, membership fees, professional fees for accountants, solicitors, etc., allow for a marketing budget, maintenance costs for the premises you will be working from such as cleaning, decorating and so on, equipment you will need such as laptops, printers, software subscriptions, any transport costs, insurance costs (property, contents, plumb liability and professional indemnity insurance, and any bank charges - these are just a few examples you may have additional overheads from other items you may be want to take on or use. Add all these up for your forecasting. 

So each year, you will compare your income with the sum of your outgoings and see if you break even or if you have made a profit. In the beginning you can aim for at least a 15% profit to allow for fluctuations and of course that can grow over time as you cash flow and profits increase. Compare your potential income with the income you would have had if you were employed by someone else and weigh the befits of employment versus self-employment. 

When you will be preparing a cashflow forecast, key areas of expenditure that will need to be included are:

• Salaries
• Consultancy costs 
• Subscriptions 
• Insurances 
• Travel and subsistence 
• Motor expenses 
• Repairs and renewals 
• Telephones 
• Postage and stationery 
• Heating and Lighting 
• Rent and rates 
• Bank charges 
• Pensions

Then, as part of your 3-5 year plan, in addition to the economic side, you should also look at the social side:

• If you are considering to go down the route of the sole practitioner, it will be worth considering how are you on your own? Do you have a tendency of feeling lonely? Are you disciplined enough to push yourself? What if you get ill, how will you keep the practice going? What if crisis strikes, how will you deal with it? How are you as an employer if you choose to employe someone? Can you manage people efficiently and effectively? Can you delegate? Can you provide motivation? And how are you as an architect? Do you need others to bounce ideas off of? Can you stay up to date with legal and professional issues you may need to deal with? Can you promote yourself and your firm? 
• If you go down the partnership route, consider how you are with your partners, have you previously worked together, have you established who will do what tasks and roles, have you agreed on your working hours and holidays, are you expected to bring equal amount of work in, will you be good at managing people together, do you have similar architectural styles, will you generally work together or separately? 

So what I just ran through up to this point is Step 1 of what you need to consider as your initial checklist before actually establishing the practice. 

Moving onto Step 2, this is a checklist that will inform your business plan and ultimately determine the way you will run a business and carry out projects. The essential items you need to capture with this checklist is:

• Your mission statement - this can me a short statement of your intent for the business
• Your objectives - these will be the means for achieving your mission
• Performance requirements and measures that set out targets and benchmarks you’ll use to assess and measure your achievements against your objectives
• Your priorities - These can be principles, beliefs or themes such as sustainability, business ethos and so on
• Management of decisions and responsibilities - who will be doing this?
• Timeframe - setting out a programme for progress and development
• And then also adding your who and where as the two key items from Step 1

Then using this checklist, you move onto Step 3, which is outlining your business case. This will typically involve carrying out a SWOT analysis, advice, research and training:

• Starting with the SWOT analysis, this is in essence an analysis of your businesses strengths (these are internally focused on the businesses strength to be used to promote the practice), weaknesses  (also internally focused, which are areas the practice needs to give attention to and improve on) opportunities (externally focused, prospects of growth and development) and threats ( also externally focused listing elements outside the practices control). The SWOT analysis helps you to maximise your opportunities by taking advantage of your strengths and minimising your weaknesses. For example, by analysing the architecture practices in your area and what they offer and identify a gap in the market meaning you might be able to offer something they don’t technically identifying a gap in the market.  There is an example of a SWOT Analysis in the Good Practice Guide: Starting a Practice and the Handbook of Practice Management if you’d like to familiarise yourselves with it. 
• Naturally after your SWOT analysis, you will be looking into research that you would have already used to research the potential market for your services. Research will be something that will continue throughout the life of your practice but initially you will be looking into the size of the market and the range of services that are likely to be in demand. Other professionals can potentially assist you with this such as solicitors, estate agents and local authorities. Then you will need to size up the strength and character of the competition you will most likely come up against and assess how they find their clients, their style, their relationships with their clients, their fees and any challenges they faced as a business at that location to inform your business structure and ethos. 
• The next key thing to do is get advice. This can be from financial, to legal, to branding and managerial. Try and get as much advise as you can from different individuals that you can of course choose to follow or not depending on how suitable and relevant it will be for you but having that advice will greatly assist in your growth. Some professional help you will need to help set up the business will be assistance from an accountant (that can help you determine the most appropriate form for the business), an insurance broker (to help with the PI insurance and other liability insurances), a bank manager (to help with any loans and making the most of the practices finance), a legal advisor (to help with the form of business you will decide to use and for any conveyancing services of the practices chosen premises you will probes need further legal advise as you grow but these are the initial things you will most probably need assistance/advise on) and potentially an IT, web and marketing consultants. 
• Then you can start seeking business training to help reinforce some of your skills or learn new ones that will help you to run your business such as management courses or even MBA’s.

Then using all these tools and as a result from your initial economic checklist from Step 1, you can start looking into investments. Will you start the practice small and cheaply and build up gradually or will you start with a big sum investing heavily and committing to your business from the outset? Taking into account the advice you obtained how much are you prepared to risk to get your business off the ground? Are you willing to remortgage your house to get the investment you need? These are key decisions you need to make from the beginning that will inform your next step and the business model you decide to use. 

By the end of Step 3, you should have a clear idea of your business aims and goals, the market you will be following, your growth timescales and intentions, your capital and financial plans and you’re long term goals. 

Next step will be your business plan, which I will cover in the next episode.

So to sum up what I’ve discussed today, I have gone through the initial 3 Key Steps you must first establish before progressing with the business plan and structure. 

• First for Step 1, you need to establish your Why, What, Who and When, which are the core questions of the reasons behind your decision of starting your own practice and these are robust enough to help move you onto the next step.
• At Step 2, you develop your checklist that will inform your business plan and this should include your mission statement, objectives, performance requirements, your priorities, decision management and responsibilities, and timeframe. 
• Then using the checklist from Step 2, you move on to Step 3 which is outlining your business case by carrying out a SWOT analysis, research, seeking advice, business training and investment to keep the business going.

And some words of wisdom on sustaining a sound practice

• Remember that architectural practice of any size is a business and must operate at a profit overall in order to survive. Profit margins in small practice are usually tight, and time and money need to be managed effectively.
• Have a strategy for the type of work or professional services which you prefer, and set your limits for size of commission, distance or time for travel. Decide what you would wish your practice to be identified with.
• Consider the adequacy of resources before you are tempted into a commission where resources of staff time, skills and expertise, and knowledge of the particular type of work are not, and cannot be, realistically adequate.
• Keep detailed, accurate records of the time taken for various tasks and types of commission.They might prove invaluable when putting together future bid proposals and for PII claims.
• If you are a sole practitioner, do not just rely on your memory and always make a written record. Put in place a management system appropriate for the scale and nature of your operation. This will be invaluable to anyone brought in to cover for you in time of illness.
• Find time for CPD, particularly where this relates to developments in technology, changes in the law, and IT. If necessary, take the initiative to persuade a larger office to host events, and invite small practices in the area.
• Follow the SMART rule - Specific (what you want to achieve), Measurable (What you need to meet your goal?), Achievable (can these goals be met?), Realistic (set realistic goals) and Timed (set deadlines for your objectives).